Mortgage-delinquency rate lowest since 2008

At the end of last year, the delinquency rate for home mortgages hit the lowest level since 2008, according to data released Thursday by the Mortgage Bankers Association.

A seasonally adjusted 7.09% of all outstanding loans for one-to-four-unit residential properties were delinquent at the end of the fourth quarter. That delinquency rate was down 49 basis points from the same period in the prior year, according to MBA, a Washington-based association.

The delinquency rate covers loans that are at least one payment past due, but not in the foreclosure process.

Looking at serious delinquencies — loans at least 90 days past due or in the foreclosure process – the rate reached 6.78% in the fourth quarter, down 95 basis points from the same period in the prior year. The percentage of loans on which foreclosure actions were started was 0.70% in the fourth quarter — the lowest rate since the second quarter of 2007 — down 29 basis points from the same period in the prior year. Meanwhile, 3.74% of loans were in the foreclosure process at the end of the fourth quarter — the lowest rate since the fourth quarter of 2008 – down 64 basis points from the same period in the prior year.

Low interest rates that continue to hover near record lows are helping troubled borrowers and supporting a strengthening housing market. Indeed, a federal program has helped refinance more than two million loans over the last few years, and an industry alliance recently announced that more than 850,000 homeowners received loan modifications from mortgage servicers in 2012. Read more about refinancing.

Still, the housing market faces a variety of challenges, including ongoing high unemployment. The shadow inventory of homes, which refers to homes that are either on banks’ books or about to be foreclosed, is declining, though foreclosure levels remain relatively high. Read more about shadow inventory and home sales.

While modifications can be useful, principal reduction is key, according to consumer advocates. On Thursday, the U.S. Department of Housing and Urban Development announced that the country’s largest mortgage servicers have dispersed about $46 billion in direct relief to more 550,000 homeowners – with about $23 billion of debt forgiveness — as part of a national mortgage settlement. The principal reduction has lowered monthly payments on more than 266,000 loans, cutting loan balances by an average of more than $84,000.

“The settlement is testament to the fact that large scale principal reduction can be used an important tool in our efforts to prevent foreclosures without incurring negative results,” said Shaun Donovan, HUD’s secretary.

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